The digital banking world is growing fast, and thanks to the power of the internet, it has never been easier for everyday consumers to access digital banking services. With the penetration of mobile devices, you no longer need to set foot in a brick-and-mortar bank as all the power is at your fingertips.
Digital banks enable anyone worldwide to make cashless transactions at a wide variety of stores and shops online. However, to the uninitiated, digital banks and the processes involved in digital banking can be intimidating.
For a better understanding, here is everything you need to know about digital banks.
What Is a Digital Bank?
A digital bank is one that automatically delivers banking products and services through electronic or online means as opposed to visiting the bank in person to access those products and services.
At its core, a digital bank will give you all the services you would expect from a physical bank but with an app on your smartphone or a website on your computer.
Digital banks are also referred to as neobanks, virtual banks, or online banks.
Why Should You Use a Digital Bank?
With more than 70% of people indicating that they use digital banks more often than traditional alternatives, the idea of using digital banks is becoming more commonplace.
The best digital banks offer various advantages, including digital self-onboarding, where you can register for an account by yourself.
Digital banks also allow you to make loan applications and receive approvals on your applications in a matter of minutes. With increased digitization, digital banks increasingly facilitate peer-to-peer payments.
However, they also feature some cons, such as security risks and steeper learning curves depending on the type of technology used.
Here is a detailed look at the advantages and disadvantages of using a digital bank.
Digital or online banking services come with lower fees, not to mention various choices to pick from as you get to compare rates and fee structures for the best option that fits your needs. Given that digital banks don't have to pay for overhead costs such as electricity, landscaping, or rent, they can pass down those savings to the customer by reducing fees.
Speed is also a common feature of digital banks as they offer automatic payment processing. You get to transact with anyone on a peer-to-peer level in the shortest time possible. Moreover, you can access all the banking products quickly, thus adding to the convenience.
Higher Interest Rates for Savings
In addition to the lower fees, digital banks also come with higher interest rates, thereby giving you higher yields on your checking account or deposit account.
Better Apps & Online Experience
Most digital banks come with a simple and efficient mobile app that gives your round-the-clock access to your funds at any time as opposed to visiting the teller. From the comfort of your home or anywhere you are with your phone, you can transfer funds from one account to the other, apply for a loan and transact with unlimited access. This is much better than waiting in line to access your bank account the traditional way.
Easy Onboarding Process
Compared to traditional banking, digital banks have a much easier onboarding process as there is no paperwork involved. A user can self-register through the bank's official website or mobile application and upload identification documents via their smartphone. This can also be a decent way of avoiding human error that comes with paperwork.
Better Account Management
Digital banking services give you more options for managing your finances. For example, you can set up alerts for purchase limits on your digital account, set up automatic peer-to-peer payments, add transaction limits and even lock card transactions for different countries.
While most digital banking services feature many financial products, they are limited in some capacity, given the limitations of internet connectivity and mobile devices. For instance, while you can access small loans from your phone, you would need to go into the bank to sign a physical document to access bigger loans and credit positions. Furthermore, there are limited solutions for accessing large cash withdrawals while only using digital banking services.
Difficult to Make Cash Transactions
As mentioned earlier, online or digital banking is limited in terms of access to cash. Simply put, digital banking limits you to digital money operations as you would have to visit an ATM to have access to cash. Therefore, banks that exclusively offer digital banking services and products have to work with third parties to give their customers access to physical money.
No Physical Locations
The lack of a physical location removes the personal touch you would get by visiting a traditional bank. A personal relationship with your bank is advantageous as you always know who to call when you need a business loan, a waiver on fees and penalties, or a new line of credit. Having in-person contact with your bank can help you get access to bespoke financial products and access a variety of investment products that is hard to achieve with a digital bank.
Lastly, digital banks are vulnerable to privacy and security issues as valuable information about your finances is always prone to hacks. The good news is that you can prevent this by always using the digital bank's official website or mobile application. Strengthen your password and keep it a secret. Also, don't click on suspicious links and messages on your email or text messages. You can also add two-step authentication to your digital bank account as an extra layer of protection.
Available Products & Services
Digital banks offer a variety of services that aim to add convenience and ease of use to customers. These services and products include the following;
Digital banks offer both physical and digital versions of debit cards. The physical debit cards operate similarly to what you would get with traditional options. On the other hand, virtual debit cards can be stored on your digital bank account and used to make purchases online just as you would with a physical card. Some digital banking services offer you the option of creating a virtual bank debit card that is disposable; therefore, you can create a new one with every purchase, thus keeping your data secure at all times.
Digital banks offer a fast and reliable money transfer service. You can send and receive money from clients, vendors, friends, and family with your digital bank. What's more, the cost of moving money is much cheaper compared to traditional banks.
Access to credit is as easy as a few clicks on your smartphone or computer with a digital bank. Digital banking services can automatically assess your creditworthiness and issue loans. These credit services will vary from one digital bank to the other.
Like a traditional savings account, digital bank accounts offer savings accounts with various options for creating customized saving plans.
Digital banks can collaborate with other financial institutions to offer their customers a variety of investment opportunities. For example, a digital bank can offer a "High-Yield Certificate of Deposit" investment product with a fixed rate of return on a minimum deposit.
Examples of Digital Banks
Now that you have a clue of what the best online banks have to offer check out this online-only bank list.
With 7 million customers onboard, N26 is a digital bank that caters to international travelers. This digital bank received its full banking license in 2016. It operates across 25 markets around the world as a fully digital bank. Some of its primary services include an international debit card that features free ATM withdrawals.
Lauded as one of the best neobanks out there, N26 also allows users to make contactless payments with the debit card with the option of making up to five withdrawals per month. In terms of fees, users will pay up to a 1.7% fee for currency withdrawals apart from GBP.
The N26 mobile app is quite intuitive and is available on both Android and Apple devices. You can set up a fingerprint login for added security to your digital bank account.
Revolut started in 2015 as a mobile bank offering a travel card with affordable exchange rates. Revolut is currently the fastest-growing digital bank in the UK, with a wide range of features ideal for frequent travelers. Revolut offers features that allow users to top up and hold several currencies on their digital bank accounts. Opening and maintaining your account on Revolut is free; however, unless you have a premium account, accessing the Revolut debit card costs £4.99. Also, ATM withdrawals are free up to £200, after which it cost 2%. You can pick a Revolut card either as a Mastercard or Visa and even top-up to your account using another bank card at zero fees. Revolut's top banking features include a monthly budgeting and spending tool, a savings account that automatically stored your savings, a direct debit card as well as an interest-earning savings account.
Bunq is an online bank in Europe that operated as a fully licensed digital bank based in Amsterdam, aiming to simplify the banking process. It offers a variety of accounts, including a personal account, a business account, a joint account, and a built-in savings account that earns interest.
Some of Bunq's accounts are priced between €2.99 and €17.99 per month. However, there is also the option for a cheaper account. Bunq doesn't offer any free account.
Other features of the Bunq digital banking service include a voice-controlled banking app on Apple Watch. The service also comes with the capacity for making international money transfers. You can link two bank accounts to a single credit card and even set up different pins for each account.
Contactless payment is also possible with Bunq, and there is an investment fund you can participate in as well.
How to Open an Account
Opening an account with a digital banking service is easy. Just follow the following steps.
Step 1. Review and Pick
Use our comparison tool to find out which digital bank best suits your needs. Once you have picked the digital bank of your choice, click on the button to start the registration process.
Step 2. What You Need
To open an account, you will need to provide the bank with the personal information that the bank will use to verify your identity. This includes your social security number and your government-issued ID, among other relevant documents.
Step 3. Register and Verify
Once you have relevant documents for verification, it is time to register an account by filling up the forms on the registration page of the digital bank account. Finally, verify your account and start using your digital bank account.
Methodology - How We Find the Best Digital Banks
The fees charged by any finance and payment platform are an essential consideration as it determines the cost-benefit analysis for using that platform.
Ease of Use
A digital bank's ease of use is crucial as it adds to the convenience of its service.
It is crucial to consider the range of available products on a digital bank: the more financial products you can access, the better.
Security is a top priority when picking a digital bank. A secure digital banking service allows you to set up additional security features such as 2-FA authentication.
Given that digital banks don't have physical access. Thus, having a robust customer support system is crucial.
Frequently Asked Questions
Yes, these terms refer to the same thing. However, although traditional banks can offer online banking services, digital banks are exclusively available online with no physical establishments.
Digital banks deploy the same level of security protection as traditional banks. As long as the digital bank is licensed insured, you can have peace of mind that your funds will be protected.
Some disadvantages of using digital cash include the risk to data privacy and the overall complexity of using digital platforms. However, with advancements in technology, the process is simplified, and better cyber security measures are being implemented.
Find The Best Digital Bank Now
Choosing a digital bank can be intimidating, especially for users who have never interacted with any digital banking system. For this reason, we created our advanced comparison tool: to help you find the perfect digital bank for you in the least amount of time.
All you have to do is answer a few short questions, and our algorithm will instantly show you which digital banks best match your current requirements.